Kids' Allowances: Expert-Approved Real-World Approaches

More and more parents are asking kids to earn their allowances. Here, three families share their systems  and the lessons they teach.

All Lori Mackey wanted to do was inspire her two children to get ready for school on time. But no amount of cajoling or prodding worked. One day, out of desperation, she promised to pay them $1 apiece for every morning that they got up when the alarm rang, brushed their hair, ate breakfast, tidied their rooms, and were ready to walk out the door by 8 a.m. Four years later, Briana, now 14, and Devin, 12, have graduated to earning up to $12 a week for doing a set of household chores. And they still get up in time for school every morning. Its the best money I ever spent, Mackey beams.

Allowances have long been an American family fixture, and for good reason. Experts say that giving kids a set sum of cash to manage regularly helps them learn to handle finances capably as adults. For most children, an allowance is their first opportunity to experience making choices, budgeting, placing value on things, and figuring out the difference between needs and wants, says Carrie Schwab Pomerantz, chief strategist of consumer education at Charles Schwab & Co. and president of the Charles Schwab Foundation, which supports financial literacy programs.

What some parents, like Mackey, have realized is that kids will do stuff for those dollars, and in todays tough economic times, many moms and dads like the idea of teaching kids that money comes attached to obligations.

So which is better, allowance or wages? There are arguments for each (a no-strings-attached allowance leaves more time for studies; wages teach the lesson that effort leads to reward). But theres no research that I know of that demonstrates either approach is better, says Robert Duvall, president and chief executive officer of the nonprofit National Council on Economic Education (NCEE). Your best path depends on what your priorities are and what your kids are like  their ages, abilities, and inclinations. To show the range of possibilities, we asked three very different families to share their systems  and got experts to explain what parents can take away from each story.

The approach: Allowance-plus

The mom: Stacy Kaiser, Calabasas, CA

Her goal: As a divorced working mom in her 30s, Kaiser wants to make sure her two daughters understand the financial demands of the real world  including the fact that she cant provide as much money for purely discretionary spending as some of her neighbors. But she doesnt want her girls to feel deprived, so she came up with an allowance-plus plan whereby the kids get the money they need and she gets the help around the house that she needs.

Her system: Kaiser pays Jordan, 12, $5 a week in allowance; Katie, 10, receives $3, and both get raises each year. The girls are required to contribute to the weekly household upkeep, but their allowances arent tied to specific chores. They can spend their dough as they choose. If the girls shirk their duties, they still get their money, but until the work is completed, Kaiser rescinds privileges such as watching TV or playing with friends. If one of them gets tired of a specific job, Kaiser lets her suggest alternatives  so Jordan recently quit cleaning the bathroom counters and started walking the dog instead.

Kaiser wont advance her daughters any money, in hopes that theyll learn to budget. But if they feel the need for additional funds, they can propose bigger projects to tackle for pay (allowance-plus). She also wants them to develop negotiating skills, so when Jordan offered to wash the car, Kaiser had her look up the going rate at the car wash, which was $9, and the two negotiated a fee of $5 for the job (Jordan got less than a professional because, as Kaiser told her, she didnt have as much experience and know-how).

Finally, Kaiser gives spontaneous extras if the girls have been behaving well  family movie outings and occasional small cash bonuses. Theres nothing better than when your boss tells you, Youre doing a great job. Its real motivation, says Kaiser.

What the expert says: Money coach Mary Hunt, author of Debt-Proof Your Kids, likes that Kaisers system doesnt cut drastically into the kids schoolwork or fun time. Also, Hunt adds, by letting her daughters decide when to propose paying jobs, Kaiser is helping them develop real-world entrepreneurial skills without too much pressure.

Enforcing penalties for not doing housework also teaches responsibility, says Hunt. But rather than curtailing privileges, she prefers issuing citations that require kids to pay their folks a substantial cash penalty. Its the worlds best deterrent, she claims.

Hunt was pleased to hear that Jordan is about to open a savings account, and she suggests that Kaiser reinforce the girls long-term money-management abilities by shifting from a weekly allowance to a monthly, a switch she recommends all parents make once their kids turn 10. Sure, its hard to watch your tween blow her money the day she gets it and then struggle, but its the only way shell learn to plan, Hunt says.

Finally, Hunt approves of Kaisers system of giving annual raises at the beginning of each school year  which works best, she says, if you simultaneously expand the list of purchases the larger allowance must cover.

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